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Are Adjustable Rate Mortgages Ever Better?

By Ann White

There are many different types of mortgage products available to home buyers and people looking to refinance. The most popular of the options are fixed rate and adjustable rate mortgages. Each of these mortgage products and each works for different consumers. While many favor the traditional fixed interest rates, there are some that benefit more from the adjustable mortgage rate products.

What are Fixed Rate Mortgages?

Fixed interest rate mortgage loans are made for a set amount of time, usually fifteen or thirty years at a set interest rate. The interest rate does not go up or down during the lifetime of the loan. The interest rate is often set depending on the borrowers credit. This means that people need to have good credit to get the best possible interest rate. This type of mortgage allows for a stable payment that is easy to set into a budget.

What are Adjustable Rate Mortgages?

Adjustable interest rate mortgages are loans that are also made for a set amount of time, usually fifteen or thirty years. The introductory interest rate is typically very low and is good for three to five years. After that time, the interest rate goes up to market value. As the Federal Reserves adjust lending rates, the interest of the loan can go up and down. The interest rates are typically adjusted every year or at another preset interval. The credit requirements are not as strict for adjustable rate mortgages.

Why Choose Adjustable Rate Mortgages?

People that do not have good credit may not qualify for a low interest rate, using a fixed mortgage. Adjustable rate mortgages can provide a way for people to qualify for a loan and repair their credit. People can use the introductory period to work on credit issues, then refinance before the interest rate goes up. In other cases, people do not plan to live in a house for more than five years. These mortgages allow people to save money on interest, because they will sell the house before the interest rate goes up.

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